aggressively to prevent deflation in the collapse in the economy so it failed in its economic stability function. and it didn't adequately perform its function as lender of last resort, allowing many bank failures and a reas a resulting contraction in credit and also the money supply. so in that respect, again, the fed did not fulfill its intended mission. so these are key lessons and we want to keep these in mind as we consider how the fed responded to the 2008-2009 financial crisis which we'll be getting to the beginning of next time and then in great detail next week. so next time, on thursday, we'll review developments in central banging after world war ii. but we'll spend plenty of time next time in the lead-up to the crisis of 2008-2009 and we'll begin to see how the history of central banking explains how the federal reserve responded to this most recent and severe crisis.

okay. be happy now to take questions on the lecture. yeah, michael. >> you mentioned the monetary policy, you mentioned '28, '29 [ inaudible ]. do you think that the federal reserve should have taken different actions [ inaudible ] or was it wrong for them to take any action at all? >> that's a good question. what the fed did -- i think the mistake they made, they were very concerned about the stock market. and they believed that it was excessively priced. and there was evidence for that. but what they did was they attacked it solely by raising interest rates without attention to the effect on the economy. so by raising interest rates, they wanted to bring down the

stock market and they succeeded, of course. but the side effect of it was it had major impacts on the economy as well. so i think, yeah -- i think that what we've learned about asset price bubbles, they are dangerous and we want to address them if possible. but you can address them through financial regulatory addresses, that's usually a more pinpoint approach than just raising interest rates for everything. so margin requirements or at least looking at the variety of practices. there were a lot of very risky practices by brokers, you know -- it was the equivalent of day traders. every paper boy had a tip for you. and there weren't very many checks and balances on trading and on who could make a trade and what margin requirements were, et cetera. so it's a good question. i think that the first line of attack should have been more focused on bank lending, on financial regulation, on the

functioning of the exchanges. >> i had a question on the [ inaudible ]. do you think everything that we know about monetary policy now [ inaudible ] why is there still an argument, some argument, for returning to gold standard, and is it even possible? >> so the argument i think has two parts. one is the desire to maintain, quote, the value of the dollar. basically it's a desire to have very long-run price stability. so the argument is paper money is inherently inflationary, with gold standard you won't have inflation. as i said, that's true to some extent over long periods of time. but from a year to year-basis,

it's not true. so looking at history is helpful there. the other reason i think that gold standard advocates want to see return to gold is that it removes discretion, it doesn't allow the central bank to respond with monetary policy, for example, to booms and busts. and the advocates of the gold standard say it's better not to give that flexibility to the central bank. those are basically the arguments. i think, though, that the gold standard would not be feasible for both practical reasons and policy reasons. on the practical side, it's just the simple fact that there's not enough gold to meet the needs of a global gold standard. and achieving that much gold would be very expensive. cost a lot of resources. but more fundamentally than that is that the world has changed.

so the reason the bank of england could maintain the gold standard even though it had a very small amount of gold reserves was that everybody knew that they were going to -- their first, second, third and fourth priority was staying on gold. they had no interest in any other policy objective. but once there was concern that bank of england might not be fully committed, then there was speculative attack that drove them off gold. now, economic historians argue that after world war i -- after world war i the labor movements became much stronger. and there was a lot more concern about unemployment. before the 19th century people didn't even measure unemployment. after world war i you began to get much more attention to unemployment and business cycles. so in a modern world, the commitment to the gold standard would mean that we are swearing that under no circumstances are

we going to do anything about it using monetary policy. if investors had 1% doubt that we would follow that promise, then they would have every incentive to bring their cash and take out gold, and in fact it would be a self-fulfilling prophecy. we've seen that problem with various kinds of fixed exchange rates that have come under attack during financial crises. i understand the impulse but if you look at actual history you'd see that the gold standard didn't work that well and it worked particularly poorly after world war i, indeed -- i won't go into it, there's a good bit of evidence that the gold standard was one of the main reasons that the depression was so deep and long. and a striking fact is that countries that left the gold standard early and gave themselves flexibility on monetary policy recovered much more quickly than the countries that stayed on gold to the bitter end. approximate you mentioned that

president roosevelt used [ inaudible ] abandoning the gold standard to [ inaudible ]. i believe in 1936 and 1937, up until 1941, we had a double-dip in the recession sort of went on. as you see today, that we've sortpu recession. what do you think are things that we need to be careful of that possibly they had mistakenly done in the great depression [ inaudible ]? >> right. it isn't generally appreciated, the great depression actually was two recessions. there was a very sharp recession in '29-'33. from '33-'37,a decent amount of. stock market recovered some. but in '37-'38, there was a second recession that wasn't quite as serious as the first

one but still serious. there's a lot of the- it would to go through all the discussion. there's a lot of controversy about it. the one view that was advanced early on was that the second recession came from a premature tightening of monetary and fiscal policy. so in '37-'38, there was -- rooseve roosevelt, under a lot of pressure to reduce budget deficits and so, on tightened fiscal policy quite a bit. the fed, worried about inflation, tightened monetary policy. again, i don't want to claim it's all that simple. a lot was happening.terptations at least, were that the reversal in policy too soon prevented the recovery from proceeding faster. i think -- we'll talk about lessons later on. but i think if you accept that traditional interpretation, it is that you need to be attentive to where the economy is and not

move too quickly to reverse the policies that are helping the recovery. leland. >> yes. a few of the graphs that we saw today and other historical trends, it seems that after an economic slump, recovery often takes five or more years. as represented by the great depression [ inaudible ]. i was wondering, do you think it is common for unemployment to remain at high levels until sometimes a half decade after an economic slump? and is criticism often premature? moreover, how do you address these concerns in a political environment when short-term fixes are often found to rule the day? >> let me just comment that the depression was a sort of extraordinary event.

i mean, there were many serious declines in economic activity in the 19th century but nothing quite as deep or quite as long as the great depression. so the high unemployment that lasted from 1929 until basically world war ii, that was unusual. so we wouldn't conclude that was a normal state of affairs. now, more generally, there is some research that suggests that following a financial crisis, it may take longer for the economy to recover because you need to restore the health of the financial system. and that may be one reason, so argued, that the recovery, this most recent recovery, is not proceeding faster than it is. but that's -- i think it's still an open question. and there's a lot of discussion about that research, as well as discussion of what might underlie that sort of stylized fact that is out there. so no, it's not always the case.

if you look at recessions in post-war period in the united states, you see very frequently that recoveries only take a couple of years. but very -- in fact, very sharp recoveries -- recessions are typically followed by a faster recovery. that's been the pattern the post-war period. what may be different about this episode, and again, once more, this is a subject of debate, is that unlike the other recessions in the post-war period, this one was related to and triggered by a global financial crisis. and it may be that it's going to take longer, it's already taking longer, for the economy to recover. but again, a lot of issues still to be resolved. last question. anyone else? melanie? >> since you said the depressions and recessions are

global, shouldn't there be more global cooperation, central banks to have a -- like a uniform kind of fix, instead of every country [ inaudible ]? >> you set me up perfectly for my lecture next week. i'll talk about how the fed and other central banks did cooperate and continue to cooperate. one of the problems in the depression was the bad feelings left over from world war i. in the 19th century there was a reasonable amount of cooperation amongst central banks. but in the 1920s, germany was facing having to pay reparations. france and england and the u.s. were all bickering about war debts. and so the politics was quite bad internationally. and that impeded some of the cooperation of central banks. the other thing to say is that

international central bank cooperation is probably even more important when you have fixed exchange rates. you had fixed exchange rates in the '20s because of the gold standard. that meant monetary policy in one country affected everybody. so that was certainly the case for more coordination, didn't it. at least today, we have flexible exchange rates which can adjust. and tend to insulate other countries from the effects of monetary policy in a given country. so that reduces somewhat the need for coordination. but there's still i think the need for coordination. well, thanks. this has been great and i'll be back on thursday. thank you. >> well, we're just about out of time at 2:00. i told my friends at the fed as we were setting this up, we thought we might have 10, 15 minutes for question and answer after the chairman left. i said, this is an old professor. once he gets up there, he's going to have a good time and

we're going to have q and a that goes on for a while and i'm delighted with that. students, great questions, wonderful questions. what i would like to ask you to do, since we didn't have a lot of time for additional ones, is to swithme two additional questions that you want to do follow-up on in two weeks. we will see you next thursday -- this thursday at 12:45. great, thank you very much. >> thank you very much. >> i think it's safe to move now. still ahead on c-span3, the u.s. ambassador to the united nations, susan rice, on the obama administration's foreign administrations budget. after that, the surgeon general presenting her report on youth

smoking. then the house oversight committee hearing on fraud in the food stamp program. and later, a discussion on the effect of negative political advertising. starting april 1st see the winners in this year's c-span institute cam video competition on the theme the constitution and you as middle and high school students from across the country showed which part of the constitution was important to them and why. we'll air the top 27 videos mornings at 6:50 eastern on c-span and meet the students who created them during "washington journal" each day. studentcam.org and congratulations to everyone who participated in this year's competition. two live congressional hearings wednesday morning on c-span3 to tell you about. at 9:30 a.m. eastern, the house oversight committee looks at the european debt crisis.

both federal reserve chairman ben bernanke and treasury secretary tim geithner testify. and when that hearing wraps up, live coverage of the house budget committee. consideration of the republicans' budget proposal for next year. we expect to bring you the house budget markup at about 12:30 p.m. eastern. the u.s. ambassador to the u.n., susan rice, testified on capitol hill today about the obama administration's foreign operations budget. some members questioned the $79 million used for unesco, the u.n. educational scientific and cultural organization. even though palestine is not internationally recognized as a country. ambassador rice's testimony is an hour and a half. >> i want to welcome everyone to today's hearing.

ambassador rice, thank you for being with us today to give testimony and answer our questions on the administration's budget request for the united nations and international organizations. i know it's challenging year since you last. we commend you for your efforts to get the international community to pressure iran to stopu've also pushed the u.n. t assist countries in the middle east and north africa that are facing difficult transitions. and i know there are many issues you're always workingn unfortunately, in spite of your hard work there have been many disappointments at theup over the last year. the conflict rages on in syria with russia and china unwilling to join the international community unless we hear differently from you this morning. and we want to hear your thoughts on what, if anything, can still be done to put pressure on those countries to act. the situation is very troubling and it's difficult to explain to

our constituents why the u.n. can't come up with a coordinated response to a crisis of this magnitude. we've also watched with concern as the palestinians go around the peace process to seek recognition as a palestinian state. administration officials made it known to the palestinians that the u.s. would veto a statehood resolution at the security council, then the palestinians simply changed their strategy and went to unesco. we're still concerned that the palestinians will try to get their status elevated in the general assembly and other u.n. agencies. we'd like an update on what you expect will happen over the next year on that issue. the u.s. is now withholding our contribution to unesco because of the palestinians' action. that's in accordance with u.s. law. many members of congress believe that cutting off these funds is the reason the palestinian authority stopped further recognition efforts, yet the administration's requested the

authority to waive the provisions of law that required unesco's funding to stop. we'll want to hear more about this waiver proposal. in addition, the many concerns remain about the effectiveness and transparency of u.n. organizations, the administration's report on u.s. contributions to national organizations shows that $8.5 billion was provided to the u.n. and other international organizations in fiscal year 2010. i was very concerned to learn that while the u.s. is the largest u.n. donor, we have limited access to information to ensure that our funds are spent wisely and effectively. as a result, provisions are now included in the state foreign operations appropriations bill that require the secretary of state to withhold funds if the u.n. and its agencies are not making progress on transparency and accountability measures. we expect to see real changes and want to hear how these new

requirements will be met. another troubling development is that the subcommittee recently learned about the possibility of a significant cost overrun for the u.n. headquarters renovation project. as you know, language was carried in thet appropriations bills to limit the costs of the project and minimize the burden on the united states. we continue to expect you and the state department to work together with the u.n. to finish the project within funds already appropriated for those, that project. i want to close with a topic mentioned at the beginning of my remarks and that's iran. the head of the iaea said he had serious concerns that iran may be hiding secret atomic weapons. whe iran has now signaled a willingness to return to talks, i'm very concerned about the time for talk has pa simply be

another stalling tactic. we want to hear what actions you're taking at the u.n.se pressure on iran. in closing, ambassador rice, i want to thank you delegation stationed in new york and around the world. we appreciate the sacrifices that are made on a daily basis and we thank you now i'll turn toremas. morning, rice. i join with chairwoman granger in welcoming you today, and i thank you for your service to our country. in the years since we last had you here before our subcommittee much has happened. from the crisis in syria to the famine in the horn of africa to the ongoing transition in afghanistan, the u.n. has been deeply involved in matters of great importance to the united states and the global community. in a world with threats do not

stop at borders and at a time when americans are tightening their belts and looking to us to make every dollar count, the u.n. plays an indispensable role in advancing our interests and defending our values. while the u.n. is not perfect, it delivers real results for every american taxpayer by advancing global stability. the benefits are not always obvious to the casual observer but the u.n. is so fundamental to our efforts overseas that did it did not already exist we would have to create it. through our membership in the u.n. we have met the response to emerging challenges and global crisis with the added resources, expertise and international legitimacy of the u.n. membership in the u.n. makes our country more secure and more prosperous. and it supports u.s. efforts to advance democracy, u.s. rights, health and development. i look forward to hearing from

you about how the president's budget requests will promote our national interests and maintain u.s. global leadership through our continued work with the united nations. specifically, i hope you will address how the u.n. is working to address the violence in syria. iran's pursuit of nuclear weapons. efforts by the palestinians to seek statehood outside of a negotiated settlement with israel. i hope you will highlight both successes you have had over the past year, as well as your strategies for overcoming continued challenges. last year you spoke about reforms the u.s. is pushing at the u.n., including increased budget discipline, improved transpapercy, and better protection for whistle-blowers. i hope you'll provide an update on those efforts, as well as discuss concrete steps the u.s. is taking to promote additional reforms and the u.s. mission's work to make the u.n. more

efficient, effective, and transparent across the wider u.n. system, including u.n. funds, programs, and specialized agencies. from well-known organizations like unicef and the world's health organization to lesser-known groups such as the international telecommunications union and the world's intellectual property organization, u.n. specialize the agencies and affiliated organizations provide a wide range of services to the world community. i hope you will highlight the importance of these organizations to u.s. economic and security interests, as well as what the proposed 6% decrease in the fy 2013 request to voluntary contributions would mean for these organizations. from the start of the 112th congress we have seen repeated attacks on the u.n. from legislation demanding impossible changes to proposed funding cuts that would

undermine the u.n. and negatively impact u.s. leadership. unfortunately, i anticipate similar efforts this year. the u.n. cannot deliver the results we want if we starve it of the resources it needs. moreover, it's in our interests to ensure that the rest of the world continues to pick up almost three-quarters of the tab for u.n. activities. i believe if we treat our financial obligations under the u.n. charter as optional, others will too, resulting in increased bilateral assistance needs, less opportunity for multi-lateral coordination, and most important and far greater cost in blood and treasure. on the opening day of the u.n. general assembly session in 1983, president reagan noted that "our goals are those that guide this very body. our ends are the same as those of the u.n.'s founders who

sought to replace a world at war with one with a rule of law would prevail. where human rights were honored. where development would blossom. where conflict would give way to freedom from violence. these words remain true to this day, and i hook forward to continuing to work with you to support robust u.s. leadership at the united nations. thank you. >> thank you,y. ambassador rice, you'll have your full written statement placed in the record, of course. and so please feel free to summarize your statement if you choose. >> thank you very much. chairwoman granger, representative loy, members of the committee, thank you for inviting me to testify today. i'm grateful for your continued support of our efforts at the united nations, especially in this time of fiscal constraint. on behalf of the administration, i'm pleased to request full

funding for fiscal year 2013 for three accounts. the contributions to international organizations, the contributions to international peacekeeping activities, and the international organizations and programs account. as both democratic and republican leaders have long attested, a strong and effective united nations is one of our best tools to tackle many of the world's problems. the u.n. is not the sum of our strategy, but it's an essential piece of it. in response to the horrors in syria, the united states andat have negotiated peaceful transition and a responsible democratic process. despite russia and china twice vetoing security council action, the united nations general assembly and human rights council have repeatedly and

overwhelmingly condemn the carnage and the united nations has played an important role in supporting arab league efforts to end the crisis, including through the joint appointment of special envoy kofi annan. in libya, the united states led the united nations to prevent gadhafi from massacring his own people. to end illicit nuclear weapons programs the united states pushed the security council to impose the toughest sanctions ever on iran and north korea. as the president has made clear, we will prevent iran from acquiring a nuclear weapon. and as long as iran fails to meet its international obligations, the pressure will build. the united states played a critical role in supporting the creation of a newly independent south sudan. in cote the u.n. stopped a strong man from stealing an

election and ensured the democratically elected president took office, thus preventing a return to civil war. these are just a few examples of how u.s. leadership at the united nations is producing tangible results for the american people. but despite important progress, much remains to be done. that is why we're championing greater budget discipline and comprehensive management reforms that will make the united nations more efficient and cost-effective. in december, we led a successful effort to cut by 5% the size of the united nations regular budget. the first reduction in 14 years and only the second in the past 50 years. the obama administration has also succeeded in holding veace-keeping budget past three years.